Slowly, as Student Debt Rises, Colleges Confront Costs

Andrew Martin,The New York Times

Tuesday, 15 May 2012 | 1:50 PM ETThe New York Times

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cost of education

In a wood-paneled office lined with books, sports memorabilia and framed posters (including John Belushi in “Animal House”), E. Gordon Gee, the president of Ohio State University, keeps a framed quotation that reads, “If you don’t like change, you’re going to like irrelevance even less.”

Mr. Gee, who is often identified with a big salary and spendthrift ways, says he has taken the quotation to heart, and he is now trying to persuade Ohio State’s vast bureaucracy, and the broader world of academia, to do the same.

At a time of diminished state funding for higher education and uncertain federal dollars, Mr. Gee says that public colleges and universities need to devise a new business model to pay for the costs of education, beyond sticking students with higher tuition and greater debt.

“The notion that universities can do business the very same way has to stop,” said Mr. Gee, who is also the chairman of a commission studying college attainment, including the impact of student debt.

College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families.

"Tuition levels are at a tipping point.""-College credit outlook in early 2012. , Moody's Investors Service,

Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms.

And Wall Street is watching.

Moody’s Investors Service, in a report earlier this year, said it had a favorable outlook for the nation’s most elite private colleges and large state institutions, those with the “strongest market positions” that had multiple ways to generate revenue. Ohio State, for instance, received a stable outlook from Moody’s last fall, though the report cautioned about the school’s debt and reliance on its medical center for revenue.

But Moody’s issued a negative outlook for a majority of colleges and universities heavily dependent on tuition and state revenue.

Colleges can be top-heavy with administrators and woefully inefficient, some critics say, and some have only recently taken a harder look at ways to streamline their operations.

“Schools are very good at adding new things, new programs,” said Sherideen S. Stoll, vice president for finance and administration at Bowling Green State University in Ohio. “We are not so good at looking at things we have been doing for 20 or 30 years and saying, ‘Should we be offering those academic programs?’ ”

"“We know the model is not sustainable. Schools are going to have to show the value proposition."-Vice president for enrollment management at Ohio Northern University. , Lawrence T. Lesick

At Bowling Green, 62 percent of graduates have debt that averages $31,515, the highest among Ohio public universities that publish the data. In addition to raising tuition, which has been limited by state-mandated caps, the university has laid off employees, encouraged early retirements, required unpaid furloughs and limited pay increases, Ms. Stoll said. The belt-tightening hasn’t yet reached the point that academic quality has suffered, she said, but Bowling Green may not be able to offer as much in the future.

“We’ve done everything and anything to try to operate much more efficiently,” she said.

The problems aren’t confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees. Families have become more price-sensitive since the economic collapse and are seeking deeper discounts on the sticker price.

“We know the model is not sustainable,” said Lawrence T. Lesick, vice president for enrollment management at Ohio Northern University. “Schools are going to have to show the value proposition. Those that don’t aren’t going to be around."

There is a dispute about why college costs have risen so much. Before the economic crisis, some critics argue, both public and private colleges participated in a costly “arms race” to provide better amenities to lure the best students and faculty: new dormitories with one student to a room, frequent sabbaticals for professors, upscale cafeteria food, expanded counseling services and gymnasiums that rival the fanciest health clubs in Manhattan.

Others say education is intrinsically expensive. Health care costs, for instance, have taken a toll, since colleges are labor-intensive. And the expense of keeping up with technology, like wireless Internet and new computers, is high. Here at Ohio State, where tuition has increased by nearly 60 percent since 2002, there is a gleaming new student union, climbing walls that can accommodate 50 students at a time and $2 billion in construction projects under way.

Mr. Gee’s compensation package this year, moreover, is worth about $2 million, and The Chronicle of Higher Education has called him the highest-paid public university president. The Dayton Daily News recently reported that Mr. Gee had billed Ohio State for $550,000 in travel in the last two years.

The travel expenses prompted some to question if Mr. Gee practices what he preaches.

“He’s very capable. He’s a very smart guy, and he’s engaging and all these things,” said Dale Butland, a spokesman for Innovation Ohio, a nonprofit policy research group. But he added, “Students and their parents who are struggling, not just with coming up with the money, but paying off the debt, I think there is a disconnect between what they are being asked to do and what they are seeing the leader of the university doing.”

Mr. Gee maintains that Ohio State is getting its money’s worth. On his watch, Ohio State has become a more prestigious university, he says, while remaining a relative bargain, even with fewer resources from the state. It now receives just 7 percent of its budget from the state.

Ohio State costs about $25,000 a year for in-state residents who live on campus. The average debt for graduates who borrow is $24,480.

"When I got here, I asked to see their long-term financial model, and they brought me a paper for one year, and I said, ‘What?’ ” "- , Geoff Chatas

A lanky 68-year-old who is known for his bow ties, horn-rimmed glasses and sometimes zany antics (he has shown up, unannounced, at 21st birthday parties for his students, which he finds on Facebook), Mr. Gee has had the top job at five universities, including twice at Ohio State. He returned to the Columbus campus in 2007 after stints at Brown and Vanderbilt. Mr. Gee acknowledges that college affordability and student debt are growing problems that university presidents long ignored. He said they now needed to address them quickly.

“We have not been as conscious about costs as we should be, and that has now come home to roost,” he said.

Like many other college presidents, Mr. Gee has set about trying to make Ohio State’s highly decentralized bureaucracy more efficient. He said he planned to find $1 billion in inefficient spending in the university’s $5 billion budget over the next five years and redirect the money toward priorities.

“We are like Noah’s Ark,” he said. “We do two of everything.”

The university saved $20 million simply by switching to common vendors for pens, copiers and overnight shipping; previously Ohio State’s 14 colleges chose their own. Creating a common expense report will save $75 million.

“When I got here, I asked to see their long-term financial model, and they brought me a paper for one year, and I said, ‘What?’ ” said Geoff Chatas, a former banker whom Mr. Gee hired in 2010 as chief financial officer. “Now we have a 15-year plan.”

Mr. Gee said he was considering selling off Ohio State’s airport and golf courses, and he might privatize campus parking, though faculty members are balking at the idea. Last year, Ohio State became the first public university to issue a 100-year bond, for $500 million.

He is also is trying to beef up Ohio State’s enrollment of out-of-state and international students, who bring in more tuition revenue and higher test scores. And, he is pressing donors for more money, a task in which he is particularly skilled.

At a ceremony to honor a $100 million donation from Leslie Wexner, the clothing magnate and Ohio State graduate, Mr. Gee choked back tears.

“Every time I get a lot of money I cry,” Mr. Gee told the crowd. “And I got a lot of tears left.”